Responsibility should be a priority for seafood investors

Responsible investment is a key impetus for a sustainable seafood industry, and investors are increasingly expected to use their finances responsibly. Investors have been criticised funding fossil fuels and deforestation, and those funding seafood are sure to get the same treatment.

In the case of palm oil, Greenpeace established a direct link between the biggest palm oil companies and HSBC. Through its investments, HSBC was contributing to the huge rate of Indonesia’s deforestation. As a result, some banks have pledged to put into effect zero-deforestation policies, and HSBC has recently sped up its efforts to greatly tighten its lending requirements to the palm oil industry.

Finance should be included in the equation

Businesses require finance to start or expand their activities. Without money, they are unable to function.

Responsible investment comes from the idea that investments should have a positive financial return, in addition to other beneficial impacts, such as on society and/or the environment.

Business managers need to ensure their business prospers. And as a society, we have an obligation to protect our environment – which includes our oceans. When both environmental responsibility and business acumen are taken into account, the conditions of a sound investment opportunity are more likely to be met.

Seafood marginalised in push for responsible investment

Overfishing is an international problem, and stocks are approaching collapse in many regions of the world. Meanwhile, illegal fish is still entering the EU market.

There is growing acceptance that major seafood companies’ supply chains are often directly linked to human rights abuses and illegal, unregulated and unreported fishing.

Thirteen of the largest seafood companies worldwide are responsible for 11 to 16% of the global catch. If these companies work together to source responsibly, taking into consideration environmental and social impacts, this could have a significant positive impact.

Increased pressure for seafood supply chain businesses to source responsibly should also come from financiers, from fishing fleet owners to fish processors and retailers that source fish from around the world. They have a major role to play in encouraging responsible supply chains.

As a central stakeholder in a business’s current or future operational capability, investors have a responsibility to meticulously check that the business they are supporting is not endangering the resource it relies upon. Getting a clearer understanding of the nature of the relationships between financial institutions and supply chain companies, and limiting the exposure of investors to risks, is one of the aims of Fish Tracker.

Aviva’s responsible investment team is promoting more responsible practices from investors in the seafood sector. This objective is also shared by other initiatives like the Ocean Disclosure Project, Sustainable Seafood Finance and the Oceans Asset Initiative.

As I argued in a recent blog, seafood businesses can be more responsible. The environmentally responsible Sourcing Code of the Sustainable Seafood Coalition is a good example of a common industry risk assessment approach.

What can financiers do?

Investors should move away from companies that are operating irresponsibly, because that will help them avoid reputational and credit risks.

Banks and investors are exposed to the same risks, in terms of supply and reputation, as the businesses they finance. Supporting seafood sellers whose operations are dependent on a resource that is not well managed and/or protected represents a risk. It is a risk insofar as the fish might run out, and the business can collapse – with obvious impacts for investors and lenders.

Of equal importance, if a business has links to illegal or irresponsible practices, the financier can also face substantial reputational risk. In a recent bid to raise USD 100 million on the Hong Kong Stock Exchange, China Tuna Industry Holdings (a subsidiary of Mitsubishi Corp.) was stopped because it misled investors. The information available to investors ignored the most recent scientific advice on the state of the Pacific Bigeye tuna stock as being overfished. This had an impact on the reputation of the company and its financial backers (including Deutsche Bank). In similar cases, when companies are publicly listed, investors should require full transparency.

At the same time, banks have to be more stringent in their due diligence requirements when it comes to loans being made to seafood companies. This can include being particularly aware of the diverse risks associated with such an investment and ensuring that the seafood business operates in full compliance with the law.

Financiers investing in seafood must rigorously check the companies they invest in by implementing internal policies to that effect. A recent report by Aviva Investors and Sustainable Fisheries Partnership presents some guidelines on how investors can find out more about a company’s sourcing policies.

The level of risk associated with irresponsible practices is growing. Thanks to public campaigns, consumers are now more aware than ever before of the role businesses and their financiers should play. This is an excellent moment for seafood investors to raise the standards for everyone and drive positive change towards healthier oceans.

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Sarah Babineau

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